Oil price hike: quick-fix measures wont work

Railway minister Laloo Prasad Yadav and former cricketer Navjot Singh Sidhu are the clowns of Indian politics. But think of the actions of the two in the past fortnight and you will begin seeing the difference. Sidhu led the protest for the Bharatiya Janata Party against the fuel price hike by riding an elephant. Effective but clearly stupid. Do excuse my intemperate language but the gall of the politicians to believe we are myopic and their complete lack of leadership in this time of crisis makes me mad.

The fact is that prices of oil in the international market have been spiralling. The public oil companies, who buy from the international market, are taking huge hits. The government has only one alternative: to cut taxes on fuel, which it and all other governments (except the us) charge to bring in money for development. In other words, its option is to pass the burden of the price hike from the rich to the poor. Sidhu and his party, who incidentally have closed ranks with the communist parties on this issue, cannot be more off the mark.

Laloo on the other hand thought differently. He issued advertisements from his ministry announcing a freight tariff discount on railways. His message: “when bad news can be good news”. Clearly he is on top of the crisis and knows that the answer to this inevitable fuel price rise will be in doing things differently — moving towards mass transportation by railways or buses is part of this solution.

The Indian circus is being replayed in other countries as well. General Motors (gm) is America’s symbol of glory and inventiveness. But it is Sidhu-type as well. We know that the issue of petroleum prices is very dear to the American people, whose auto-dependent lifestyle their politicians say is not negotiable. But all the Bush armies (not for lack of trying) have not been being able to cut oil prices. The government already keeps taxes low on fuel. So, it needs to fix things anew. But gm does not think it necessary. It has announced a promotional scheme — the fuel price protection programme — by which if you buy a gm dream car, the company will guarantee gas at a cap of us $1.99 a gallon for one year — no limits on how much you can drive.

The problem is not just that this is a marketing gimmick to sell more cars by promising cheap fuel. The problem also is that the cars they plan to sell are the gas-guzzling varieties. The gm cars specialise in being fuel inefficient because they cater to the American macho image, fuelled by driving big Cadillacs and sports utility vehicles (suvs). These cars give a mileage of 4-5 km per litre of petrol.

gm has another sweet deal. It promises a discount to all army personnel when they buy suvs “in appreciation of their commitment” to the us. No wonder, columnist Thomas L Friedman, who writes for the New York Times, comments sarcastically that “this is really touching. gm first offers a gasoline subsidy to get Americans hooked on nine-mile-per-gallon cars, then, offers a discount to soldiers who have to protect oil lines to keep gm’s gas guzzlers guzzling”.

So, do we go the gm and Sidhu-Left way? Or should we be worried enough to take steps to re-design our use of oil? It is said that the price of oil, which has crossed us $70 will climb to us $100 by the year end. We know that we are dependent on imports — up to 70 per cent of our use. We know that all exploration and new finds are still on the way to being sourced and delivered. Pipelines for natural gas, an alternative fuel, from Iran, Turkmenistan, Myanmar, or Bangladesh, are only on the drawing board. We know also that over 90 per cent of the petrol we consume is used in the private automobile sector and that a substantial proportion of the diesel is burnt in cars, with deadly impact. Worse, we know that the price differential between petrol and diesel is pushing more private automobiles manufacturers to follow gm’s policy of making big guzzling diesel cars. So, even a Mercedes-Benz will drive on diesel to save money. This, when we know that diesel is highly toxic and that even the best diesel being sold in India (in select metros) does not allow sophisticated after-treatment devices to be installed. In other words, it is dirty as hell.

We know all this. We do nothing. Every few months, the government will dither and the opposition will shout. The impact of higher prices of oil will cripple our economy and make the poor poorer. We must have an obsessive and decisive game plan.

Let me spell out a few elements. First, we must mandate fuel economy standards for all vehicles. China is setting tough standards and in particular is tightening controls on the infamous suv fleet — it has mandated an increase in fuel efficiency of 5 per cent by 2005 and 10 per cent by 2008. Secondly, we must make sure that we discourage the use of cheaper diesel for private vehicles, which may be more fuel-efficient but end up polluting more. We can do this by tightening standards of fuel efficiency on the diesel fleet and putting in place fiscal disincentives on its purchase. Thirdly, we must invest heavily — and I mean heavily — on public transport and railways. This is our insurance package.

But this is the package that our foolish politicians will mouth but not believe in. Quick-fix answers are what our politicians are looking for feeding this addiction for fuel. It is a high that will give us a low.